Don’t let the ATO’s Christmas Grinch spoil your Work Christmas Party
If you hold a Christmas party for your employees and associates you need to be aware of Fringe Benefits Tax (FBT) and also know what is and isn’t tax deductible.
This article also covers Client Christmas party tax implications.
Entertainment – How to avoid Fringe Benefits Tax
Employees
- If held at a premise that is not your work place, eg restaurant – To avoid FBT you need to ensure that the cost per head for the party is below $300 for employees and their associates.
- If held at place of business on a work day – there is no cap on the amount $ per head for employees, however there is still a cap of under $300 for associates (family members of employees).
- If held at place of business on a non-work day – as long as cost per head for the party is below $300 for employees and their associates then no FBT?
Note on Income Tax and GST
If you avoid FBT than you need to realise that the costs are also NOT tax deductible and BAS excluded, meaning you cannot claim them as a tax deduction in your business income tax return and you also not claim the GST credits in your next BAS lodgement.
However, if you’re feeling generous and the cost is $300 or more per employee, then you can claim the cost as a tax deduction and GST credit, but you have to pay FBT.
Clients
Entertaining clients is always FBT free but it is also Non- tax deductible and BAS Excluded regardless of the cost per head. If you want to treat your clients and claim a tax deduction for doing so, then buy them a gift instead. see gift section below.
Taxi Trips
Employees
- FBT Exempt and Tax Deductible – You may pay for your employees taxi’s home if the travel is a single trip beginning or ending at the employee’s place of work and the value of the benefit is less than $300 and the benefit is provided infrequently, then you will not have to pay FBT and the fare will be tax deductible.
- FBT Exempt and Non-tax deductible – If you pay for a taxi from place of entertainment that is not your workplace eg restaurant, the benefit is considered to be for the facilitation of entertainment and is not a separate benefit from the entertainment itself so you will need to make sure the cost of taxi and entertainment combined is less than $300 per person to avoid FBT.
Clients
- CFBT Exempt and Non-tax Deductible – For clients, the taxi fare is considered to be part of the entertainment expense and no deduction is allowable.
Gifts
Under Australian Tax Office (ATO) rules, gifts given to a current or former client may be deductible at tax time if they are offered with the intention of generating future assessable income.
- If you want to ensure any money spent on gifts is tax deductible, then you need to make sure that the gift falls under the classification of ‘non-entertainment’. Gifts such as gift vouchers, a bottle of alcohol, hampers, groceries, games, flowers, beauty products and computers all fit the ‘non entertainment’ classification.
- Gifts that are considered ‘entertainment’ and therefore are not tax deductible include theatre, concerts, dinner at a restaurant, movie or sporting event tickets, holidays including accommodation and tickets to amusement parks.
Basically, a bottle of wine (unscrewed) is a tax deductible ‘non-entertainment’ gift, however if you unscrew that bottle and then give it to the client, its now called Entertainment.
Employees
FBT Exempt and Tax Deductible – Gifts below $300 are a tax deductible expense providing they are ‘infrequent’ and are classified as a ‘non-entertainment’ gift.
Gifts of $300 or more will be subject to FBT but will still be tax deductible.
Clients
Gifts to clients are tax deductible and the $300 limit does not apply. The ATO confirms that such outgoings are generally deductible as they are being made for the purposes of producing future assessable income.
Links
Here’s some ATO links, so just repurpose what content you want and add a little of your own commentary and advice.
Christmas parties
Christmas gifts
Worked example of a Christmas party on work premises
